Cloud

Transforming the Enterprise with Blockchain and DLT

Blockchain technology, perhaps best known for its usage in alternative currency mechanisms like Bitcoin, represents a largely untapped resource for transformational usage in a vast array of enterprise apps. Moving far beyond fintech and alternative currencies, blockchain has potential for usage in areas like supply chain and global logistics, the insurance sector, or virtually any environment where goods or services are exchanged on a large scale. Interest in blockchain is on the increase, and demand for individuals skilled in this emerging technology is at an all-time high, with LinkedIn seeing a threefold increase in the number of job postings for blockchain skills over the past 12 months.

Of the many advantages to blockchain that hold the potential to transform the enterprise, there are two that are significant. First of all, blockchain allows transactions to take place without a third-party intermediary by leveraging what is known as “smart-contracting” mechanisms. The financial benefits of this approach are immediate and obvious, holding out the potential for eliminating substantial third-party transaction fees. Secondly, as a distributed ledger technology (DLT), blockchain overcomes significant security risks that come with holding transactional data in a centralized location, and its design is inherently resistant to tampering and data theft.

The current state of blockchain in enterprise ecosystems

As a distributed peer-to-peer software platform for digital assets that does not require centralized storage of data, blockchain allows users to make transactions with each other without requiring a third-party intermediary, and it uses an open, distributed ledger to record transactions over a tamper-proof peer-to-peer network with distributed timestamping.

Cloud environments have led enterprises to move away from a highly centralized operating model to an ecosystem model, made up of large and decentralized groups of partners, providers and suppliers. The emergence of gig economy platforms, sometimes with networks of hundreds of thousands of providers, may well represent the next major move for blockchain.

As a direct result of this distributed, ecosystem approach, process and technology are becoming interconnected during the early design-thinking stage, and organizations are beginning to get an idea of how distributed ledger technology can benefit their organizations. Currently, though, when approached from a purely technological perspective, organizations tend to want to use what they know. As a result, they are able to solve an immediate technology problem, but are limiting their ability to align with solutions that may ultimately deliver greater enterprise benefits in the future.

Distributed ledger technology, as a potential enterprise platform, can be seen as an operating system without siloed databases. On an application level, Distributed Applications (DApps) run on top of the blockchain operating system, and this lends itself to workflow automation and transactional processes for recording large numbers of transactions in a cryptographically secured, three-key ledger.

Getting started with enterprise blockchain apps

Thought leadership on DLT is beginning to emerge, and early adopters are just beginning to develop solutions based on this technology. However, there remains a shortage of thinking on how to get started with it, and defining what the practical applications for the enterprise may be. In most cases, a new technology must be incorporated into an enterprise operating model before it can be successfully adopted, and blockchain must be approached in this same way. By realizing the potentially transformative nature of blockchain and DLT, we can create a model that transcends the technology itself and becomes greater than the sum of its parts.

The first step is to understand that blockchain has a wide variety of potential applications that go far beyond financial transactions and alternative currencies. In particular, it has a number of applications in B2B enterprise environments, where paper checks are still the norm for 60 percent of B2B payments. The high cost of check processing, and a rush among financial institutions to institute more efficient cross-border payments, will pave the way for blockchain-based B2B applications. In consumer-facing applications, in addition to personal money transfers, social media is likely to be one of the first consumer app to take advantage of blockchain – with individual data and interactions recorded through the digital ledger instead of a centralized social media platform. It even holds potential for civic applications such as digital voting.

Blockchain applies to any business or consumer platform whose operating models involve processing transactions in the exchange of information, goods or services.  Forward-thinking businesses already realize that blockchain is an emerging technology that will have broad implications for how business is conducted in the future, and is not going away.

While the prospect of rolling out a blockchain initiative may seem overwhelming, it’s best to start with the basics. Evaluate current processes, and assess whether there are areas within those processes which could be automated from a time, cost, or performance management perspective.

Then determine whether those processes rely on a database – and if so, whether the process or data could be logged into a blockchain ledger to streamline and break down silos in databases. In many cases, business goals may be supported with a flow of information facilitated by blockchain automation.  Then, in the end, determine whether adopting blockchain will deliver an improved ROI (either through savings on transaction fees, or an increase in efficiency).

Much of the early process is in education – not only in self-education for an enterprise team of cross-functional domain experts, but in educating decision-makers about what the long-term benefits may be. Ultimately, there are more manual tasks that can be automated than most managers realize, and according to some research, approximately 45 percent of all office-related tasks can be automated – many of which may fit into the benefits of distributed ledger technologies.

Building an ecosystem

In the cloud and as-a-service world, enterprises grow less through internal means and more through building a larger external ecosystem of suppliers and partners.

Interest in blockchain continues to grow, and it is rapidly becoming an essential tool for financial services, supply chain and global logistics. Ultimately blockchain is more than a technology, it is a transformation – and, as such, understanding the business process side of the technology is an essential starting point to harnessing its full potential.

 

Alex-Paul Manders works at Information Services Group (ISG), a leading global technology research and advisory firm, as an active thought leader, researcher, presenter and advisor on blockchain and distributed ledger technologies.  Alex-Paul is ISG’s Technology Business Management (TBM) Practice Lead for the Americas, advising clients on IT financial management strategies in support of digital transformations. Contact Alex-Paul at Alex.Manders@isg-one.com.

 

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